Finance Committee Co-Chairman Mike Chenault, R-Nikiski, said he wants to take the money off the table now before lawmakers get their hands on it later this session.

"The longer it sits out there, the longer and the better chance we as a Legislature can find something we really love and we really want to fund," he said.

Legislators such as Chenault say they are repeatedly hounded by their constituents to save money while the state is rolling in surplus revenue earned from high oil prices. Saving a significant chunk of the surplus has been a mantra of Republicans, Democrats and the administration since January, but ideas vary on where to place it.

"Any money that we don't spend this year is a savings," Chenault said.

Chenault suggested setting aside half of the $600 million for education funding in fiscal year 2008 and placing the rest in an account in the Alaska Housing Finance Corp. that can be used for general needs.

The Legislature created an education fund last session to "forward fund" needs for grades K-12. Some $400 million from oil surplus revenues was added to the fund through the fast-track supplemental bill.

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A House Finance Committee meeting was canceled Monday afternoon, due to deliberations over the amount of savings and where to put it, said committee member Rep. Bruce Weyhrauch, R-Juneau. Members are looking at the $500 million-$600 million range, he added.

Weyhrauch supports putting $350 million toward the state retirement system's $5.7 billion debt that the state must pay over the next 25 years, he said.

House Majority Leader Ethan Berkowitz, D-Anchorage, said putting the money in a fund for short-term education needs would not yield any returns on the investment. He suggested depositing a portion of the surplus into the Alaska Permanent Fund or the state savings account known as the Constitutional Budget Reserve.

Education funding can always be taken from the reserve if necessary, he added.

Gov. Frank Murkowski has lobbied to use $400 million of the surplus as a down payment on a $25 billion natural gas pipeline that the state hopes to build with North Slope oil producers.

"We're really focused on what we can do to make the gas line a reality," said the governor's budget director, Cheryl Frasca, adding that revenue from the pipeline can be used to fund a variety of education needs.

The savings proposal would be added to the fast-track supplemental spending package that the Senate approved last week. The Senate version amounts to $97.9 million, which comes in $25 million leaner than the governor's proposal.

It includes $12.8 million for the Alaska Marine Highway System to cover increased fuel costs.

More than half of the spending - $55.4 million - comes from the state's general fund and about $40 million is from the federal government.

The Senate cut $8.8 million of state money for federal low-income energy assistance and $6.4 million for small municipality energy assistance.

"That's something that isn't there that should be," said Rep. Beth Kerttula, D-Juneau.

The operating budget that the House Finance Committee is taking up this week is expected to be at least $115 million less than the governor's original plan, Chenault said. That number is likely to go up or down as committee hearings continue.